Tuesday, September 30, 2014

Trinity Western v. LSUC: Interveners

Trinity Western is, unsurprisingly, seeking judicial review of the Law Society of Upper Canada's decision not to accredit their law school - a decision with the result that Trinity Western law grads would not be eligible to practice in Ontario.  I previously explained why Trinity Western shouldn't have a law school, and then explained my view on the consequences of LSUC having rejected them.

LSUC is not the only one to reject them.  Other Law Societies that hold their own votes in such matters have, as well - New Brunswick rejected them, and Nova Scotia granted only a 'conditional acceptance' if they don't make their law students agree to their 'community covenant'.  Which is as good as a rejection.  The BC Law Society, after initially voting to accredit them, reviewed the decision, held a binding referendum, and voted down Trinity Western.

TWU's been known to litigate this sort of thing in the past, so nobody's surprised that they're litigating.

First order of business:  Who gets to participate?  In this kind of public interest litigation, lots of folks pop up on both sides wanting to support their cause.

In TWU's corner, we have:
  • The Canadian Council of Christian Charities
  • The Christian Legal Fellowship
  • Justice Centre for Constitutional Freedoms
  • The Association for Reformed Political Action Canada
  • The Evangelical Fellowship of Canada
  • Christian Higher Education Canada
  • Catholic Civil Rights League
  • Faith and Freedom Alliance
  • Gerard P. Charette
In LSUC's corner, we have:
  • Canadian Association of Labour Lawyers
  • Criminal Lawyers' Association
  • Out On Bay Street
  • OUTLaws
  • The Advocates' Society
(It's not 100% clear on the face of the decision which group CALL falls into, but I'm drawing some reasonable inferences here.)

Notice the themes?  Aside from the "Justice Centre for Constitutional Reforms", all the other pro-TWU interveners are religiously affiliated.  (Mr. Charette, the only individual seeking leave to intervene, is a lawyer and a deacon.)  All those on LSUC's side are lawyer associations.

Justice Nordheimer had to decide who gets to participate, and who gets sidelined.  There's no bright-line way of doing this, and he acknowledged that all the parties bring something to the litigation, but there's a lot of overlap between their respective positions and perspectives.

Ultimately, intervener status was granted to Christian Legal Fellowship, jointly to the Evangelical Fellowship of Canada and the Christian Higher Education Canada, and to the Judicial Centre for Constitutional Freedoms...and on the other side of the coin, jointly to Out On Bay Street and OUTLaws, to the Advocates' Society, and to the Criminal Lawyers Association.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Tuesday, September 23, 2014

Ford v. Keegan: Dependent Contractors, Fiduciary Duties, Restrictive Covenants, and More

The Superior Court of Justice released a decision last month in the case of Ford v. Keegan:  Ford is a safety consulting firm, and had retained Mr. Keegan to provide safety training to its customers.  After Ford terminated the relationship, Mr. Keegan continued to provide such services to Ford's customers and former customers, and Ford sued Keegan to enforce the terms of a non-competition clause.

Keegan counterclaimed in wrongful dismissal.

It's an interesting case, if a lengthy read, covering a number of the more nuanced issues in employment law:  Was Mr. Keegan an employee or an independent contractor?  Is the termination language in the agreement enforceable?  Are the restrictive covenants enforceable?  Was he a fiduciary of Ford?  What is the impact of Keegan's subsequent bankruptcy?

Ultimately, the court determined that Mr. Keegan was not an employee, but rather fell within the 'intermediate category' of a dependent contractor.  The agreement entitled Keegan to 30 days notice of termination, which Ford had provided - the agreement was enforceable and the wrongful dismissal counterclaim was dismissed.  As for the restrictive covenants, they were found to be void, but Keegan was nonetheless found to have breached fiduciary duties owed to Ford, and his resulting liabilities survived the bankruptcy.

So yes, a lot of ground to cover, and I'm going to deal with them in an unusual order, because I think some of the court's conclusions have more impact than others - in particular, I'm struck by the court's assessment of the written contract, because Justice Price expressly declined to follow a persuasive line of cases on the point, dealing with what I call 'formulaic non-compliance'.

The Contractual Termination Clause

The contract contained a term entitling either party to terminate the contract on 30 days' notice.  In an employment contract, this would be problematic, because the Employment Standards Act, 2000 guarantees employees with more than 5 years of service more notice than that.  The established wisdom, up until now, was that such a clause, in an employment contract, would be void ab initio - i.e. it would constitute an unlawful attempt to contract out of the terms of the ESA, and thus be voided, regardless of whether or not it satisfied the employee's actual statutory entitlements at the eventual point of termination.  This conclusion was first reached by the BC Court of Appeal 1998 in Shore v. Ladner Downs, and followed by the Ontario Superior Court in 2011 in Wright v. The Young & Rubicam Group of Companies.  (See my discussion of Wright here.)

Thus, Keegan took the position that the termination clause did not comply with the Employment Standards Act, 2000, even though he did receive more than the minimum notice under the ESA (he'd only been in the job for a little over three years, entitling him to three weeks).

I must remark that I consider the judge's finding that Keegan was not an employee to be a full answer to this submission:  The ESA simply does not apply to independent contractors, and probably not to dependent contractors either.  However, Justice Price instead found that the termination clause "did not violate" the ESA under the circumstances.

The judge referenced Shore v. Ladner Downs, then the Wright case, but declined to follow them:
I respectfully disagree with Low J.’s reasoning in Wright. An employer who prescribes a notice period in a contract of employment must conform to provincial employment standards legislation for the particular employee, in the particular circumstances.  The employer who drafts an agreement prescribing a fixed notice period, rather than one that increases with the employee’s years of service, and who does not negotiate a new employment agreement when the employee’s years of service entitles him/her to a longer period of notice, assumes the risk that the clause will become invalid at that point and that the common law will prevail to determine the period of notice required. It is only invalid at that point and not invalidated from when the contract was initially executed.
I would like to be able to call this obiter, to say that the issue was disposed of by the finding that Keegan was a contractor, but the reality is that I can find no support for that proposition within the text of the decision itself.  As a result, the decision stands both for the highly dubious proposition that dependent contractor relationships are governed by the Employment Standards Act, and also directly creates a schism in the law as to the impact of the ESA on non-compliant formulas.  Until the question is resolved by an appellate court, this will result in significant uncertainty in the law.

(I also have to say that the Shore v. Ladner Downs approach simply made sense to me, as well:  Section 5 of the ESA expressly provides that any attempt to contract out of an employment standard is void - it really is a question of contractual interpretation, of whether or not the language itself is compliant with the ESA.)

Employee versus Independent Contractor

This is an issue I see arise with surprising frequency.  Many parties choose to characterize their relationship as that of an independent contractor.  For the payor, it relieves them of obligations under various employment statutes, including employer contributions to EI and CPP.  For the payee (i.e. the worker), it can have tax advantages - you get to write off expenses.

That said, I've seen a good many cases where workers were sold on the 'you get to deduct your expenses' pitch where there are no legitimate expenses to deduct from your taxes - at least, none the CRA would accept.  This is often the case for the particularly superficial 'independent contractor' designations.

This case was not a superficial attempt to mask an obvious employment relationship with an independent contractor designation.  Keegan had a lot of autonomy in terms of his work, and while he had to comply with Ford's pricing guidelines, the compensation was all a function of his billing.  Keegan was not 'controlled' in the sense that would normally indicate an employer/employee relationship.  While Ford had its own promotional material, Keegan directed where to promote his services.

The strongest indicator of an employment relationship, in this case, was the exclusivity of Keegan's relationship with Ford - not only did he not have business or clients outside of that relationship, but he was unable to do so as a term of the contract.  Justice Price identifies this factor as not being determinative, however - that's probably correct (though I would consider contractual exclusivity deserving of a great deal of weight).  In light of all the other factors, it was not enough to make Keegan an employee.  However, it also created a degree of economic dependence inconsistent with an independent contractor relationship, with the impact that Keegan was deemed to be a 'dependent contractor'.

Restrictive Covenants

The contract included a sweeping restrictive covenant preventing Keegan from providing training to any of Ford's customers for two years, in a territory that covered almost all urban areas in Ontario and Quebec, among others.

The problem with this, the court found, is that Keegan did not have access to a list of Ford's customers.  This made the agreement ambiguous and overbroad, effectively preventing Keegan from offering services to any company which could possibly have been Ford's customer.  That rendered the restrictive covenant unenforceable.

And a court can't generally fix a restrictive covenant.  You can't just interpret it down to something that would be acceptable.

That's pretty well-grounded in the case law.  What's less grounded in the established jurisprudence, however, is where the court went from there.

Fiduciary Duties

"Key employees" can owe fiduciary obligations to their employers - i.e. an obligation to put the employer's needs ahead of their own, including an obligation not to compete unfairly after the end of the employment relationship.

Most often, fiduciary duties are reserved to senior management - people in a position to know and direct the company's activities at a high level.  However, there are cases where more junior individuals who act as the 'face of the company' are found to have fiduciary duties, as a result of the exclusive relationships they develop with clients of the business.  It's a complex area of law, and Justice Price includes a good summary of it from paragraphs 168-179.

Going into the application to the case, however, there are some problems in the analysis.  Not only does Justice Price allow a lot of 'restrictive covenant' cases to influence the analysis of whether or not a fiduciary duty exists, but he misstates the conclusions of a number of cases he relies upon - for example, in at least two of the cases where he states that employees were found to owe fiduciary duties, the contexts were of motions for interlocutory injunctions:  The courts in those cases were not called upon to provide an answer to whether or not a fiduciary duty exists, and did not do so, but rather found (at best) that there was a legitimate argument to be made on the point.

There has been a movement in some quarters (including the New Brunswick Court of Appeal) to scale back the application of fiduciary duties owed by lower-level employees; Justice Price rejected that approach, however, and concluded that, when Ford provided Keegan with a list of customers, it put itself in a position of vulnerability - thus, Keegan owed a fiduciary duty not to unfairly compete using the customer list provided by Ford, and breached that duty.

Respectfully, I think we're looking at two distinct issues here:  A fiduciary duty doesn't arise by virtue of possession of the list.  A fiduciary duty, in this context, can only arise as a result of the nature of the relationship between the customers and the employee.  The list can come tied to other obligations of a non-fiduciary nature - if it's confidential and proprietary (and it probably is), then using the list may amount to a misappropriation of Ford's data.

But there's even more strangeness when looking at the nature of the fiduciary duty, because Justice Price looks to the restrictive covenant, which "while ambiguous and over-broad, and therefore unenforceable as such, is evidence from which I infer that the parties agreed that prohibiting Mr. Keegan from providing training to his customers at Training Services for a period of two years after the termination of the Agreement was reasonable and necessary to protect Training Services from the vulnerable position which it created for itself when it entered into the Agreement."

Justice Price therefore concluded that Keegan was restricted, for a period of two years, from providing services to customers on Ford's list within the geographical zone set out in the restrictive covenant.

In other words, having found that the restrictive covenant was unenforceable because it was ambiguous and overbroad, a defect which the court could not cure, Justice Price used the fiduciary doctrine to resurrect and repair it.

Further Commentary

I'm fairly troubled by the overall conclusions here.  It seems entirely plausible that Keegan violated proprietary interests of Ford, and can be held liable for that...but the finding of a fiduciary duty seems very strained, as do the conclusions regarding the contents of the fiduciary duty.

Indeed, it's not clear to me at all that it's appropriate to hold a dependent contractor to post-employment fiduciary duties in the first place.  He wasn't an employee at all, and yet he satisfies the test for a 'key employee'?  Definitely an element of having your cake and eating it too.

What's particularly alarming, though, is that there's nothing particularly unusual about the case, as 'unenforceable restrictive covenant' cases go - the employee goes off and competes, employer tries to enforce the restrictive covenant, fails because the restrictive covenant was framed too broadly.  It happens all the time, and in all of these cases there's a vulnerability of the employer to the employee (or else the restrictive covenant would have failed for other reasons, too).  If Justice Price's approach - cure the vulnerability with a fiduciary duty, and read the contents of the unenforceable restrictive covenant into that duty - were correct, that would be the resolution of all such cases, with the result that employers don't need to worry about ambiguity and overbreadth of their restrictive covenants.  It's hard to reconcile with the established jurisprudence from the Supreme Court of Canada.  Not to mention that looking to unenforceable terms as evidence of the intentions of the parties is pretty close to the exact reasoning the SCC rejected in the Machtinger case.

I'll let the bankruptcy lawyers weigh in on whether or not the finding that Keegan's liabilities survive bankruptcy is consistent with the objectives of the BIA.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Tuesday, September 9, 2014

Magnetawan Clerk was a "temporary" worker, not entitled to notice

In early April, 2009, Mr. Free was appointed to the position of CAO/Clerk of the Municipality of Magnetawan, on what Council understood to be a temporary basis.  In July of the same year, another individual was appointed on a permanent basis, and Mr. Free's appointment was terminated.

He sued in, among other things, wrongful dismissal.  The action was recently decided by Justice Gordon, with reasons reported here.

The Evidentiary Issues

There were significant disputes about the nature of the discussions leading up to the appointment of Mr. Free.  At a late stage in the proceedings, Mr. Free sought to introduce into evidence emails suggesting that the contract was for a three-year-term, and sought to increase his claim accordingly.  (I've previously posted about the impact of a fixed term contract on dismissal damages.)

The authenticity of those emails was in question, and Justice Gordon seemed somewhat displeased that there was no forensic evidence entered relating to the emails.

As a side note, I've come across this before:  On a file I had some years ago, the opposing party produced a number of emails which my client denied having received...and which, on close review, seemed not to quite fit with the rest of the timeline.  I managed to identify a number of irregularities in the printouts, and was able to hypothesize as to how those irregularities arose - in a nutshell, they were simply bad forgeries.  In discussing the matter with IT experts, it became clear that it's next-to-impossible to prove the authenticity (or not) of email printouts - a better forgery could easily be generated through a graphic design program.  However, an electronic copy of the email would be possible to analyze:  For example, I can go into Outlook and save an email I received as a .msg file, and send that (as an attachment to another email, or via a USB key) to an IT expert, who can then examine the metadata in the header to determine its authenticity.  Not sure if that would still be possible to forge, but it would be much more difficult.  Of course, if you're right that the printout is a fake, then you'll never actually receive it in .msg format, and instead the other side will just claim something like, "Oops, our email server automatically purges them after a period of time.  That's why we printed them out."  Disproving that becomes a much more onerous task.

Fortunately, in my case, my close review revealed that the date on the face of one of the email printouts was incoherent - the format gave the weekday, and the weekday simply didn't mesh with the remainder of the date.  It would be like a document dated Friday, September 9, 2014:  Sept 9/14 is a Tuesday, and no properly-functioning computer software could ever assign that date to an automatically-generated email header.

So Justice Gordon was faced, on the one hand, with Mr. Free claiming that this was a genuine email exchange, and on the other hand, the other participant, Mr. Evans (who was no longer with the municipality), saying "I never wrote that."

Classic "he said, she said" credibility dispute, in a sense.  Justice Gordon accepted that the emails were not authentic.  (Incidentally, Justice Gordon also noted that, in addition to saying 'I never wrote that, and wouldn't write anything like that anyways', Mr. Evans also opined that the date format in the printout was wrong.  Justice Gordon accepted that evidence, and in my respectful opinion was probably wrong to do so - different software and different settings can generate any number of date formats, and Mr. Evans does not appear to have been an appropriately qualified expert to give that opinion.  However, I don't think that would have changed Justice Gordon's conclusion that he found Mr. Evans to be more credible, which conclusion would be subject to significant deference from an appellate court.)

Therefore, the fixed term contract supposedly established by the emails...wasn't.

What, then, are we left with?

Was the Agreement for "Temporary" Services?

Justice Gordon concludes that the agreement between the parties was 'temporary' in nature - i.e. Mr. Free would fulfil the duties of the CAO/Clerk on a temporary basis until a permanent replacement was found.  "Given the temporary nature of the position, and the expectation it would be brief, I conclude no notice of termination was required."

At common law, there's no particular relevance to an arrangement being referred to as "temporary". An employment relationship is either for a fixed term or for an indefinite term, and are presumptively for an indefinite term - as the Supreme Court has put it: The "pattern of conduct now generally accepted and applied by the courts in the absence of evidence to the contrary is one of employment for an indefinite period terminable by either party upon reasonable notice, but only upon reasonable notice."

Conversely, an independent contractor relationship is presumed to be terminable by either party without notice, absent evidence to the contrary.

So there's no category of temporary service.  An understanding that the relationship is temporary would arguably affect (as an extended Bardal factor) the reasonable notice period for an employee at common law, but would have absolutely no bearing on an independent contractor.

Was Mr. Free an Independent Contractor?

Mr. Free invoiced Magnetawan through a corporation he had incorporated - the relationship was certainly structured as that of an independent contractor.

However, that's not determinative.  There are well-established legal tests for assessing whether an individual is an employee or independent contractor, and the characterization of the relationship by the parties is simply a factor in these tests.  Even where there is a corporation involved in the relationship, that is not determinative.

The courts generally will look to the actual nature of the relationship to determine whose business it really was - chance of profit/risk of loss, control over the work, ownership of tools, etc. - to assess whether the relationship was actually an employment relationship or an independent contractor relationship.

Justice Gordon was surprisingly brief in his assessment of this issue - not only did he not refer to the legal test, but he also didn't refer to the other factors relevant to consideration under the test.  Which surprises me here, because, while I don't think it's necessarily open-and-shut, I might need some convincing that a CAO/Clerk position is really anything other than an employment position.

Justice Gordon determined that Mr. Free was an independent contractor, and thus not entitled to reasonable notice of termination.

To What Damages would Mr. Free be Entitled?

Mr. Free lost, but Justice Gordon went on to assess damages on a 'just in case I'm wrong' basis.

If the contract was for a three year term, his damages would have been $262,800.  If it was an indefinite term employment contract, his damages would be pay in lieu of 4 months, or approximately $31,000.  Notice periods for short service employees are notoriously unpredictable, and this is well within the reasonable range.

However, from the wording and structure of the reasons, it really does look like Justice Gordon may be creating a dichotomy between 'temporary' and 'indefinite' employment which has not historically existed at law, and concluding that a 'temporary' position does not require notice of termination.

If Justice Gordon is correct that Mr. Free was an independent contractor, all bets are off, and Mr. Free is entitled to nothing.  However, if Mr. Free was an employee, then it would be very novel to say "But it was temporary employment, and therefore there was no implied term of reasonable notice."  (It would, perhaps, be more aligned with established law to say "But the indefinite term employment was understood to be short-term, and therefore the reasonable notice period is reduced.")


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Monday, September 8, 2014

Costs at the Small Claims Court

Deputy Judge Cleghorn recently released a costs decision in the case of Pilling v. Lowerys Limited, a wrongful dismissal case in Thunder Bay.

The decision on the merits doesn't appear to have been published - I would be interested in seeing a copy if any readers happen to have one - but the claim was for $22,744, and the judgment was for $1,724.65.  (I can glean from the costs decision that the defendant had alleged cause, an allegation the Deputy Judge considered not only to be unsubstantiated but actually "inappropriate".)  The Plaintiff had offered to settle on the basis of payment of $22,500 - not a huge discount from the amount claimed, but it would have been inclusive of costs and interest.  The Defendant, by contrast, had offered $2,500, all-inclusive, a week before trial.

Rule 14

The importance of offers to settle is this:  Rule 14 of the Small Claims Court Rules provides for 'double costs' to a party who made an offer, and then beat their offer at trial, under certain circumstances.  Obviously, the plaintiff didn't beat his offer to settle, but an effective defendant's offer could reverse the costs entirely - i.e. if Rule 14 doesn't apply to the defendant's offer, the plaintiff can get a contribution to his costs; if it does apply, the plaintiff has to pay the defendant an elevated costs award.

Fortunately for the plaintiff, the defendant's offer was too late to trigger Rule 14 - it has to be made at least 10 days before trial, and that offer wasn't.

But what's far more interesting is the Deputy Judge's analysis of whether or not the defendant beat their offer anyways:  He builds the costs presumption into the analysis, concluding that $2,500 isn't more than what the plaintiff ostensibly obtained, being $1,724.65 plus costs.

Rule 14 Commentary

That strikes me as an awkward analysis in the context of the Small Claims Court:  The entitlement to a representation fee, at Small Claims Court, is prompted by representation at a hearing.  If the matter hasn't gone to trial with a licensed representative, there's no ostensible entitlement to a representation fee.

To require an offer, prior to the trial, to account for trial costs would be strange, because the effect is that such a settlement would effectively compensate the plaintiff for costs not yet incurred.  The very point of an offer to settle is to avoid the costs associated with a trial.

By contrast, consider offers in the Superior Court context, where compensable costs accrue through the litigation:  As a defendant, I would make an offer that includes costs up to the date of the offer, but which thereafter either provides for no costs, or else provides for me to be compensated for my own costs.

In the Small Claims Court context, one might easily think that eligible disbursements up to the date of the offer should count, but those will typically be relatively modest.

Assessment of Costs

It appears that the Deputy Judge was looking for more details and argumentation:  The plaintiff sought a representation fee of $3,411.60, but with no breakdown of hours, hourly rates, or the experience level of counsel.

(Consider, by contrast, Deputy Judge Branoff's commentary in Fournier v. Cartier a little over a year ago:  "The Small Claims Court is therefore not as concerned with the number of hours spent and the hourly rate charged by the representative based on the years of experience.")

The Deputy Judge tried to evaluate, in a manner he considered 'arbitrary', the "acceptable amount to be paid to a lawyer to prosecute a Small Claims Court wrongful dismissal matter to the conclusion of a one-day trial."  He appears to have accepted the Defendant's figure of $2000 for this, and then reduced that on the basis of his discretion in light of the offers to settle.

He also declined to award travel costs - the plaintiff had retained Sean Bawden of Kelly Santini in Ottawa, who had to travel to Thunder Bay for the trial - on the basis that there was no explanation put forward for the necessity of retaining a lawyer from out of town.


Some (not all) Deputy Judges are very restrained in their costs award.  Even operating within the 15% cap, the assessment of a 'reasonable' representation fee often seems pretty low-ball.

Mr. Bawden may not have told the Deputy Judge that he is specifically an employment lawyer with 6 years at bar, but surely the Deputy Judge would have been able to ascertain with reasonable certainty that he was not a new call.

It's generally accepted that a day of trial requires 1.5 to 2 days of preparation - it's a rule of thumb that's 'close enough' to be of some use in evaluating such things.  You expect an element of proportionality, of course - you wouldn't usually want a high-priced Bay Street lawyer spending 20 hours preparing for a trial on a $2,000 claim - but on a claim over $20,000, it's reasonable to expect a lawyer to do his due diligence.  In that light, even if one assumes that time prior to trial prep (i.e. productions, settlement conference, etc.) does not fall within the purview of the reasonable representation fee, I would still argue that the amount sought by the plaintiff for costs - while, yes, some detail wouldn't have hurt - would be inherently reasonable.  (Even at a low-end billing rate, it's certainly in the ballpark.)

As for travel expenses, it's actually quite common for employment lawyers to have to travel.  I have a number of files from various different parts of the Province.  The more remote the community, the less likely you are to find experienced employment lawyers.  I've talked before about the importance of hiring an experienced employment lawyer - it's a niche area of law, and there's a lot of value in having a lawyer who is familiar with all the core concepts, and up-to-date with the most recent developments in the law.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Friday, September 5, 2014

Employer who ransacked employee's home tries and fails to adduce new evidence

There's a new chapter in the ongoing dispute of Irving Shipbuilding Inc. v. Schmidt.  Recall, back in March, I posted this entry about the plaintiff ("ISI") obtaining an Anton Pillar Order ("APO") permitting them to search a former employee's home, but failing to justify the need for it when it came back on for a full hearing.

ISI initially sought leave to appeal, but then decided to take a different tack - so to speak - by bringing a motion to introduce fresh evidence.

ISI contended that the original decision turned on a finding that ISI and Schmidt's new employer (Davie) operated in different sectors of the industry, and thus were not direct competitors.  However, Davie had published documents indicating an intention to move into the sector in which ISI operated, potentially leading to more significant future competition, and in fact in March of this year ISI lost a bid to a company which was subcontracting its work to Davie.

Therefore, ISI argued, the finding that ISI and Davie are not competitors should be revisited.  The Court disagreed.

There were a lot of problems with ISI's position on this motion.  Firstly, much of the 'fresh' evidence would have been available at the time of the original hearing - part of the test for leading fresh evidence is that it could not have been available at the time of the earlier hearing.  (For an excellent example of this, consider the Mehedi case about which I recently posted.)

Secondly, the judge had found that ISI had failed, in originally obtaining the ex parte APO, to provide "full and frank disclosure".  The new evidence had absolutely no bearing on this failure, which in and of itself was fatal.

Thirdly, the judge had dealt with the prospect of future competition in his decision:  These 'new facts' fell squarely into considerations he had already determined did not change the assessment of the facts.  (Incidentally, the reason ISI lost the bid in question was because of the unavailability of its docks at a time required for the contract.  While ISI contended that Schmidt's knowledge put it at a competitive disadvantage, the reality is that, but for the unavailability of its docks, its bid was the most competitive.)

On a more fundamental level, though, it boils down to a misunderstanding by ISI as to the purpose of an Anton Pillar Order:  It is not to prevent future misconduct; it is not to build a case; it is simply to prevent the destruction of evidence.  ISI still had all the records it alleged Schmidt had copied - there was no risk of destruction, which is of primary concern for an APO.  (Yes, but you might say that he would have destroyed the evidence of his possession of such documents.  That's beside the point:  The purpose of the APO is to make sure the smoking gun isn't destroyed, not to be able to catch the defendant red-handed holding the smoking gun.)
In cases such as these, there are two possible types of past misconduct that could justify the issuance of an APO. The actual removal of evidence, often in documentary form and the misuse of that evidence.  In this case, we are dealing in a world of electronic documents.  When Schmidt left his employment with ISI, he removed and retained a number of documents and preserved them on USB sticks or other portable storage devices. Because of its data loss prevention system, ISI had a complete record of everything Schmidt had in his possession.  None of its documents were destroyed.  ISI was in a position to prove exactly what documents Schmidt had allegedly misappropriated. 
(Of course, while arguably irrelevant to the issue of whether or not the APO was improper in the first place, ISI really isn't very sympathetic, when the audit of the materials seized from Schmidt resulted in a fairly clear conclusion that he did not in fact misappropriate documents as ISI alleged.)

A motion to introduce fresh evidence is fairly exceptional, and it simply doesn't seem that there was any basis for it here - it's not clear why ISI wouldn't have led additional evidence of Davie's competitive plans in the earlier hearing, but more importantly there were deep and totally fatal problems with the APO that simply weren't even close to being addressed by the new evidence.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.